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Russia: When to expect market increase

January 06, 2009 | RBC

Russia to see fully-fledged crisis in mid-2009

The upcoming year is expected to be rather hard for emerging countries, as its economies were seriously affected by the crisis. Most emerging countries are likely to see a decline in macroeconomic indicators in 2009, even if the United States’ economy rebounds. Analysts strongly believe that Russia will reach its lowest point in the first half of 2009. At the same time, raw material markets may see an increase in the second half of the year, experts note. The plunge in oil prices in 2008 was the greatest since 2004, due to lower economic growth in many countries and a slump in demand for oil. Meanwhile, experts forecast an average price for oil at USD 75 per barrel in 2009.

Most analysts point out the dollar’s considerable rise against the euro in 2008, which is expected to continue in early 2009 and subside later in the year. The European currency’s depreciation against the dollar resulted in the ruble’s significant decrease against the dollar on the domestic market. Experts foresee the ruble’s further depreciation against the basket of two currencies in 2009, adding that the ruble could go down to as much as RUB 40.16 before the end of H1 2009, if the price for oil remains at USD 40 per barrel.

According to the Russian Economy Ministry, the ruble’s exchange rate is estimated at 30.8-31.8 RUB/USD, provided that the euro trades at USD 1.25-1.30 on FOREX.

However, some experts indicate that the euro exchange rate is likely to reach 41.64 RUB/EUR in March and go up to as much as 47.46 RUB/EUR in September and 48.23 RUB/EUR in December. Similarly, the U.S. currency is expected to trade at 33.58 RUB/USD in March, ease somewhat in June (33.48 RUB/USD), edge up to 33.9 RUB/USD in September and wane to 33.26 RUB/USD by the end of the year.

Most analysts believe that the Bank of Russia will persist with its policy of gradual devaluation of the ruble. With this in mind, such companies as Surgutneftegas, Norilsk Nickel and Magnitogorsk Iron and Steel Works (MMK) are projected to fare better than the market, as they export most of their products. At the same time, Wimm-Bill-Dann and some other companies, whose share in imports is high, are likely to be affected by the weakening ruble. Analysts underline that Russia’s economy will deteriorate further before it starts recovering in the third and fourth quarters of 2009. As a result, GDP growth forecast has already been decreased 2 percent.

Meanwhile, among the key factors for the Russian market’s rise, experts cite an increase in oil prices and the global economy’s rebound after the recession. Troika Dialog experts note that the RTS index may reach 1,000 points at the end of the year, provided that the average price for oil is $55 per barrel and the ruble’s decrease does not exceed 20 percent. At the same time, analysts stress that the index could go down to 350 points, if the global recession becomes a depression, or, on the contrary, surge to 1,500 points if the global economy rises faster than expected.

Among the most attractive companies at the moment experts name Rosneft, Gazprom, Gazprom Neft, and NOVATEK. At the same time, Surgutneftegas looks stable thanks to a considerable safety cushion, while Rosneft is expected to experience some degree of problems due to extensive liabilities. The success of Gazprom and NOVATEK will depend on the government’s decision regarding an increase in domestic natural gas prices for 2009.

RusHydro, Federal Grid Company, and MRSK Holding are seen as companies with high potential, as they are partially owned by the government, as well as thanks to the allocation of government funds for their investment projects.

The Russian metallurgical sector is projected to see a decrease in production of up to 20 percent in 2009. Telecommunications companies are expected to see a considerable decline in corporate and individuals’ demand, and, as a result, a much lower rise compared to the previous few years.

Sistema Financial Corporation, Gazprom, Gazprom Neft, Comstar-UTS, Magnit, OGK-4, Polyus Gold, RusHydro, Raspadskaya, TMK, Federal Grid Company, and Raven Russia are anticipated to fare generally better than the rest of the market.

At the same time, VTB, VympelCom, Dixy Group, Evraz, LUKoil, Mechel, Norilsk Nickel, Sberbank, Novolipetsk Steel, TNK-BP, and X5 Retail Group are expected to gain the most from the recovery of prices for raw materials and greater economic activity in the second half of 2009.

Analytical department of RIA RosBusinessConsulting

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